Owens Corning bonds up, loans off on plan agreement; Delphi, GM higher on settlement hopes

By Paul Deckelman and Sara Rosenberg

New York, May 10 - Owens Corning's bonds sizzled - although its bank debt fizzled - on the news that the bankrupt Toledo, Ohio-based insulation maker had reached an agreement on its plan of reorganization that will set up a trust fund mechanism to pay off several billion dollars of asbestos claims.

Bonds of other asbestos-challenged companies were also up, though by a considerably smaller amount.

Elsewhere, Delphi Corp.'s bonds, and those of former corporate parent General Motors Corp., were seen higher, pushed up for a second straight session by investor hopes following GM chairman and chief executive officer Rick Wagoner's Tuesday remarks indicating that progress was being made in the talks between the two companies and Delphi's labor unions.

And Movie Gallery Inc.'s bonds were once again firmer, with investors eagerly anticipating Thursday's scheduled release of first-quarter results by the Dothan, Ala.-based Number-Two U.S. home video rental chain operator - results which they believe will be better than expected and will herald the company's rebound from its recent doldrums.

A trader quoted the company's 11% notes due 2012 up a point at 62.5 bid, 63.5 offered, noting "tomorrow [Thursday] is the big day."

Those bonds have been moving up steadily from levels in the 50s on investor perception that the numbers will be better than has been feared.

While Movie Gallery bonds were better, a trader in the bank loan market said that its term loan B felt a touch weaker during Wednesday's market hours. Some observers in that market chalked the softening up to simple profit taking off recent gains.

Its term loan B closed out the session quoted at 94.5 bid, 95.25 offered, down from previous levels of 94.5 bid, 96 offered, traders said.

The paper had seen a small run-up late last week and early this week, as investors were taking a very optimistic attitude towards what they might hear Thursday.

Last Friday, the term loan B had gained half a point with levels of 93.5 bid, 95 offered and then on Monday it gained a full point to 94.5 bid, 96 offered, where it remained throughout Tuesday's session.

Owens Corning bonds soar

Owens Corning's bonds and bank debt had spent Tuesday pushing higher, pushed up by all kinds of rumors about possible recovery plans or potential financing.

And sure enough, on Wednesday, the bonds picked up right where they had left off on Tuesday, and climbed steeply on the company's announcement that it had reached agreement with its creditors on a bankruptcy exit plan.

Traders saw its bonds soar as high as 118 bid, before dropping a couple of points off that peak to still end the day with a spectacular 14 or 15 point gain. A trader saw its 7½% notes due 2018 closing the day at 115 bid, 116 offered, while its 7% notes due 2009, which started the session a point behind the 71/2s, closed at 113 bid, 114 offered.

"The bonds just rocketed," he said, seeing the 71/2s at 116 bid, 117 offered before they settled in at 115 bid, 116 offered, which he called "like 16 points up. Man, oh man!"

Yet another trader said the Owens bonds were about 14 points better on the day at 114 bid, 116 offered, after having traded as high as 118.

Owens Corning's over-the-counter-traded shares meanwhile boomed 73 cents (78.49%) on the day to end at $1.66 on volume of 26.4 million - about 20 times the usual turnover.

However, the bank debt came in a bit on the news, as people think that the paper will now have a shorter take-out timeframe, according to a loan trader.

The paper closed out the session quoted at 155.25 bid, 156 offered, down from previous levels of 156.5 bid, 157.5 offered, the trader said.

Each of the company's key creditor groups agreed on the terms of an amended Chapter 11 plan of reorganization, which if confirmed, could lead to Chapter 11 emergence in 2006.

Under the agreement, bank creditors will receive a full recovery of $2.276 billion in cash, including interest calculated as of March 31 and continuing to accrue through the effective date. Non-bondholder senior and junior unsecured creditors will receive about $249 million in cash. Bondholders will receive equity and asbestos claimants will receive cash and, if the FAIR Act does not become law, some equity.

The agreement sets Owens Corning's total enterprise value at emergence at $5.858 billion, including $3.942 billion of new equity, $1.8 billion of new debt financing, $55 million from existing debt at non-debtor Owens Corning entities and $61 million in new tax notes.

The plan must still be voted upon by the individual claimants and approved by the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing the restructuring of Owens Corning and a number of other companies that were also driven bankrupt by asbestos claims, including Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. and Southfield, Mich.-based automobile components manufacturer Federal-Mogul Corp.

The bonds of those companies, meantime, were seen better on Wednesday, in apparent sector sympathy with Owens Corning. A trader saw Armstrong's 6.35% notes and 6.50% notes 4½ points better on the session at 84.5 bid, 85.5 offered. Federal-Mogul's bonds were two points better, at 63 bid, 64 offered.

Armstrong's bank debt meantime rose by a couple of points to close out the day at 84 bid, 85 offered, up from previous levels of 80.5 bid, 81.5 offered, a trader added.

Delphi keeps rising

In the automotive realm, a trader saw Delphi's 6.55% notes due 2006 punch up to 79 bid, 81 offered, well up from 74 bid, 76 offered on Tuesday.

He saw its 6½% notes due 2009 also up five points on the day, at 78 bid, 80 offered, while its 6½% notes due 2013 and 7 1/8% notes due 2029 were each up four points on the day at 76 bid, 78 offered.

A trader called the big gain "a stealth move." Another trader attributed the gain to "continued strength from [GM boss Rick] Wagoner's comments.

Wagoner told reporters in Detroit Tuesday that hammering out an accord to help Delphi cut its costs without provoking a union walkout was a major priority for GM - and he expressed optimism that it could be done.

GM, former subsidiary Delphi and the United Auto Workers union have been bargaining for months in the hopes of coming up with a formula that will let the bankrupt Troy, Mich.-based parts provider slash its heavy labor costs - generated by a contract structure it inherited from GM when it was spun off in 1999.

Delphi says it needs to cut costs as much as 40%, a demand the union has so far strenuously resisted.

Delphi is asking the U.S. Bankruptcy Court for the Southern District of New York for permission to void the contracts it negotiated with the UAW and other unions and establish a lower wage and price structure. A second day of hearings on its motion was held on Wednesday, and the court will again take up the issue Thursday. The unions have threatened a strike if Delphi tries to go ahead with such a move - and GM, which is heavily dependent on Delphi for parts and which could be badly hurt by a strike, is taking a key role in the talks in hopes of preserving labor peace.

Delphi's Pink Sheets-traded shares meantime jumped 29 cents (30.53%) to end at $1.24 on heavy volume of 33.6 million, pushed up by the hopes generated by Wagoner's statements.

With GM having so much riding on a peaceful resolution of the Delphi conflict with its unions, the carmaker's bonds were also up for a second straight day on Wagoner's statements that progress is being made. Its 8 3/8% benchmark notes due 2033 gained a point, to 76 bid, 77 offered, a trader said.

Another trader saw strength throughout the distressed automotive sector; he saw Tower Automotive Inc.'s 12% notes due 2013 two points better at 78 bid, 80 offered, while another saw Dana Corp.'s 5.85% notes due 2014 better by ¾ point at 81 bid, 82 offered.

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